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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal and the Bloomberg Business App. Should we

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Speaker 1: take this data? It's maybe the province of Ellen Zanner,

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Speaker 1: but we'll take it on a more global scale with

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Speaker 1: Seth Carpenter, Chief Global Economist, hit Morgan Stanley. Seth, I

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Speaker 1: want you to fold and I know you're gonna read

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Speaker 1: Ellen Zanner and their team here as they analyze e C. I,

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Speaker 1: but I want you to fold it into the great

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Speaker 1: China Call, which Morgan Stanley back to Steve Roaches, expert

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Speaker 1: on is China a three percent story or is it

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Speaker 1: a five percent story that could make things more complex

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Speaker 1: for the chairman of the Photo Reserve. Wow, that is

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Speaker 1: a fantastic, fantastic question. Clearly, the China reopening story is

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Speaker 1: the big narrative going on right now in markets, and

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Speaker 1: you know we've been bullish there. I think we're above

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Speaker 1: consensus five and three quarters percent, maybe a bit more

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Speaker 1: in terms of how much growth will get for for

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Speaker 1: China this year. Very bullish for US. The reopening is

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Speaker 1: UH is notable. I think though, when you talk about

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Speaker 1: Billover's back to the US, when you think about what

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Speaker 1: it does for Chair Powell, UH, they're probably a little

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Speaker 1: bit less dramatic than you might otherwise think. Clearly a

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Speaker 1: big story for people who are investing in China and

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Speaker 1: the region, but the spell back to the US, you know,

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Speaker 1: in terms of inflation isn't going to be quite so

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Speaker 1: big right now. We import a lot of consumer goods

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Speaker 1: from China, but we know that consumer goods prices have

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Speaker 1: actually been falling for the past a couple of months

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Speaker 1: as people have pulled back and redirected their spending. We

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Speaker 1: also know that China had done a lot during COVID

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Speaker 1: zero to shield some of that production for exports. So

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Speaker 1: the first order impact on inflation for the US is

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Speaker 1: actually gonna be a little bit muted. The surgeon demand

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Speaker 1: there in China domest expending, especially domestic consumer spending on services,

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Speaker 1: so the read through this time around the cycle a

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Speaker 1: little bit less South. I want you to dovetail a

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Speaker 1: Morgan Stanley stunning five point x percent China growth call

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Speaker 1: with US disinflation you and I follow Edward S. Hyman

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Speaker 1: of c J. Lawrence and Evercore. I s I and

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Speaker 1: Ed Hyman's dovetailing a China call like you with substantial

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Speaker 1: U S disinflation. Do you agree with that premise? I

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Speaker 1: think substantial probably overstates it a little bit. We are

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Speaker 1: optimistic about inflation coming down in the US. We have

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Speaker 1: a getting to below three percent by the end of

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Speaker 1: the year. And just a quick shout out, you mentioned

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Speaker 1: Ellen's and are fantastic US economist. Robin Shing is our

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Speaker 1: stupendous China economist and luckily they're both on the same

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Speaker 1: page here. Um, the disinflationary push from goods inflation is

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Speaker 1: clearly there in the data, and China is a part

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Speaker 1: of that. But like I said before, the difference is

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Speaker 1: going to be smaller than I think you might otherwise. Thank.

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Speaker 1: It really is this retrenching, and we saw it for

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Speaker 1: example in automobiles. First Tesla announced they were cutting prices

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Speaker 1: Ribby and followed Ford announcer following it on electric vehicles,

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Speaker 1: Adam Jonas our our autos analysts points out that in

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Speaker 1: the current situation, electric vehicle prices tend to drive pricing

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Speaker 1: for new cars. So a lot of the disinflation that's

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Speaker 1: going on from goods was already they're already starting. China

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Speaker 1: helps at the margin, but I don't think it's going

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Speaker 1: to be the defining story of the disinflationary tread. What's

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Speaker 1: the response set that perhaps people get over zealous by

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Speaker 1: the decelerating inflation, the disinflation that we're seeing so far

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Speaker 1: this year, take the FED off the table. The FED

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Speaker 1: does pause with rate hikes, and then inflation stays sticky

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Speaker 1: and they're forced to reignite and raise rates once again.

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Speaker 1: I think that is a risk that a month or

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Speaker 1: so ago was dramatically underappreciated. We've tried to flag that

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Speaker 1: risk a few times uh in our in our pieces

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Speaker 1: um and so yeah, the scenario you lay out, I

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Speaker 1: think is a plausible one. It's not at all the

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Speaker 1: highest probability event, but it's you know, the next couple

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Speaker 1: of months are very benign, but then non farm perils

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Speaker 1: go back up to two and inflation doesn't break through

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Speaker 1: below three and a half percent. I think it's a risk.

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Speaker 1: I'd say it's not a very very high risk, but

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Speaker 1: it's one that investors have to keep in mind. And

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Speaker 1: the only way we're going to oversure is monitoring the

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Speaker 1: data in the meantime as we get the drip drip

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Speaker 1: drip of the data, as you talk about, what are

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Speaker 1: you looking at in terms of the components, the underlyings

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Speaker 1: of some of the employment cost index, or what we

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Speaker 1: get with payrolls on Friday to get a sense of

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Speaker 1: how sticky this disinflation is. Yeah, I think I think

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Speaker 1: all of those plus the CPI data our first order important,

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Speaker 1: especially for the FED. So we've actually got a house

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Speaker 1: view that's a little bit dubish relative to markets, like everybody,

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Speaker 1: we expect twenty five basis point at this meeting, but

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Speaker 1: after that we think they're going to be done at

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Speaker 1: the FED. The only way that happens, but we think

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Speaker 1: it is the path that will happen, is if we

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Speaker 1: get farm perils coming down well below two hundred and

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Speaker 1: looking like they're going to a hundred thousand, and in

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Speaker 1: fact below a hundred thousand is I think we we

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Speaker 1: described now is not in the textbooks are coming out

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Speaker 1: of all the pandemic and supply side dynamics that maybe

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Speaker 1: we're getting back to a more traditional monetary analysis and

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Speaker 1: around that is not the question is Jerome Powell's central

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Speaker 1: banker to the world, But more nuanced is in what

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Speaker 1: way is the chairman of the Federal Reserve central banker

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Speaker 1: to the world. Yeah, I mean a few things. It's

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Speaker 1: clear that what the FED does matters, and it matters

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Speaker 1: a lot for the global economy. Um. Interestingly enough, this

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Speaker 1: cycle was a little bit different in a number of ways.

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Speaker 1: If you think about some of the e M economies,

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Speaker 1: especially in America, we saw, for example, this Brazilian central

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Speaker 1: bank start to raise rates and anticipation of the fed's

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Speaker 1: hiking cycle, they got out a little bit in front

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Speaker 1: of it. Some of the other em central banks have

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Speaker 1: been similarly defensive, and so there's actually been a little

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Speaker 1: bit less of the negatives bill over to other economies

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Speaker 1: than you might have expected in some preceding cycles. But

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Speaker 1: there are no two ways about it. We saw the

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Speaker 1: end for a while depreciate really aggressively. We saw the

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Speaker 1: euro depreciate very aggressively. What the FED does has critical

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Speaker 1: importance for the rest of the world. So let's talk

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Speaker 1: about what you expect the FED to do. You said

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Speaker 1: that you could see jobs go down to say sub

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Speaker 1: a hundred thousand in the next couple of months, allowing

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Speaker 1: the FED to pause with the raid hikes. What are

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Speaker 1: you seeing in the fundamentals in the corporate earnings to

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Speaker 1: give you a sense that we are going to see

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Speaker 1: that massive and sudden drop off in job creation. Uh,

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Speaker 1: excellent question. And first I want to preface it that

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Speaker 1: even though we think this week's FED meeting is going

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Speaker 1: to be the last rate hike, I don't see any

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Speaker 1: way at all that share Powell and colleagues are going

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Speaker 1: to indicate that it would be the last high. In fact,

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Speaker 1: I suspect they believe it will not be the last hike,

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Speaker 1: and it's going to take the data coming in as

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Speaker 1: soft as we think that they will before the committee

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Speaker 1: actually starts to change its mind. So the rhetoric I

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Speaker 1: think stays on the hawkish side, which which is I

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Speaker 1: think is similar to what Mike had said just before

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Speaker 1: the segment um. So then what else is going on? Again?

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Speaker 1: I don't think the slowdown that we're calling for in

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Speaker 1: non farm perils is all that dramatic. The last print

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Speaker 1: was two thirty or so it's been this consistent decline

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Speaker 1: in non farm perils that we think continues and gets

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Speaker 1: down to a really soft run. Ring Pal keeps talking

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Speaker 1: about wanting the economy to grow below potential for a while,

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Speaker 1: and that's what if we think it takes. So Thank

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Speaker 1: you so much. Seth Carpenter is with Morgan Stanley. This

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Speaker 1: is an important interview for Global Wall Street, arguably our

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Speaker 1: most important interview of the day, because hey, he nailed

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Speaker 1: it last time. He was on about the lift here

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Speaker 1: a sense of optimism from Stewart Kaiser was City Group

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Speaker 1: head of US equity trading, but far more than that,

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Speaker 1: head of a derivative thought, what's a bet right now?

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Speaker 1: In all the literature Steward Kaiser? It's okay? Kaiser was

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Speaker 1: right six seven percent bounce up we go, But it's

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Speaker 1: just short covering where people go, oops, I got it wrong.

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Speaker 1: It springs up, but there's no umph to break out.

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Speaker 1: What say you about the idea of there is umph

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Speaker 1: to break out and move higher? I go more Tom

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Speaker 1: and wait too much credit for thank you. Look, I

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Speaker 1: think the year two so far, if I had described

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Speaker 1: it would just be um, you know, events that didn't

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Speaker 1: didn't play out essentially right, Like, you came to the

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Speaker 1: year with very low expectations across the board from both

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Speaker 1: macro results as well as single stock earnings and and frankly,

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Speaker 1: that data just has been negative enough to justify the

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Speaker 1: low positioning we had coming into the year. Um, So

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Speaker 1: how do you keep moving higher? Um? I think you

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Speaker 1: get a continuation on Thursday, in particular of large cap

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Speaker 1: tech earnings coming through, and the FETE is hawkish, but

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Speaker 1: they're sort of reiterating a message that the market has

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Speaker 1: already kind of gotten comfortable with. And on Friday we

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Speaker 1: don't get an average average healthily earnings number that scares us.

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Speaker 1: And if those things happen, then I think the market

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Speaker 1: can continue to move higher. But I still think you

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Speaker 1: need to approach this very tactically, kind of like a

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Speaker 1: month by month basis basis. This is not a hey,

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Speaker 1: I can be long for this next three to six months.

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Speaker 1: Silster in city groups securities analysts who talk talk to

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Speaker 1: you all the time about their revenue dynamic. If we

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Speaker 1: get the disinflation, the City Group and others are talking about,

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Speaker 1: what does it due to the revenue line? Yeah, I mean, look,

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Speaker 1: that's that's the issue. I think that's that's been a

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Speaker 1: big challenge for the bear case that earnings were going

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Speaker 1: to get revised aggressively lower. Is that you had positive

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Speaker 1: revenue growth that kept earning is a little bit higher

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Speaker 1: than expected. Um. Obviously, if revenue start to ease, then

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Speaker 1: we're really focused, as least mentioned, on the margin story.

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Speaker 1: And you know, so that that that's where the debate

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Speaker 1: all kind of center, right. It won't be on top

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Speaker 1: one EPs. It will be on the quality of those

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Speaker 1: that EPs and whether investors are willing to pay a

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Speaker 1: premium for quote unquote lower quality earning. So it is

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Speaker 1: an issue, but frankly, I think that's an issue we'd

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Speaker 1: like to have, um. You know, you know, relative to

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Speaker 1: our expectations have been. We talk about recession as if

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Speaker 1: it's an event. It's a process. And in that process

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Speaker 1: you start to get companies defending margins and we start

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Speaker 1: to see that ready at somebody's big tech firms. Is

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Speaker 1: that bullish enough for you for somebody's names to have

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Speaker 1: a juitable town went through the rest of the year,

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Speaker 1: To see them defending marches, to see them kind of

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Speaker 1: close in the way they are, I think it is,

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Speaker 1: and I think investors have kind of rewarded that to

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Speaker 1: some extent. I think people are willing to look through

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Speaker 1: a quarter or two of pressure if you if a

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Speaker 1: company can give them guidance that two to four quarters

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Speaker 1: out the margins are going to kind of normalize a

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Speaker 1: little bit and look all this again, I think is

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Speaker 1: expectations driven. You had such low expectations for earnings and

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Speaker 1: such a barrisfew on where they can get to. I

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Speaker 1: think even you know, by hook or by crook, if

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Speaker 1: if a company can produce the earnings, people are gonna

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Speaker 1: generally respond positive to, at least tactically. I think, you know,

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Speaker 1: now that we're back above four thousand on the SMP,

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Speaker 1: the question to get a little bit harder, um, you know,

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Speaker 1: related to that. But but yeah, I think if if

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Speaker 1: companies can can show that they're making these cost cuts

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Speaker 1: and that is going to have you know, a visibility

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Speaker 1: into where margins are going to get over the next

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Speaker 1: couple of quarters, I think I think companies, excuse me,

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Speaker 1: I think investors will respond possible to. You know, the

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Speaker 1: earnings haven't been great. People say that the resilience has

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Speaker 1: been pretty widespread. Better than expected kinds of results they

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Speaker 1: haven't been They've been worse than expected at a higher

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Speaker 1: pace than at any time going back to two fourteen,

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Speaker 1: with the exception of March of those three months. So

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Speaker 1: at what point do we look at the earnings and

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Speaker 1: start to see maybe big Tech is reckoning with some

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Speaker 1: of the margin pressure, but the rest of the universe

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Speaker 1: is facing it in a much more significant way that

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Speaker 1: hasn't been fully priced in. Look, I mean, I would

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Speaker 1: go back to I guess his price action on that.

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Speaker 1: You know, coming into the week, we had about two

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Speaker 1: hundred fifty large cap stocks we'd we'd been tracking those

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Speaker 1: fell on earnings a hundred fifty rows on earnings. So

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Speaker 1: even though the earnings haven't becoming a great you know,

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Speaker 1: the price action I think is telling you that expectations

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Speaker 1: were washed out enough where it didn't it didn't take

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Speaker 1: much um you know. You know sometimes if a company

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Speaker 1: cuts numbers down to where the bi side is, that

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Speaker 1: stock is then quote unquote clean and people can kind

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Speaker 1: of own it. So, yeah, I think expectations again, I

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Speaker 1: hate to keep using that word, but I think that

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Speaker 1: has a lot to do with it. Do you think

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Speaker 1: that there's a clean read on tech because of how

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Speaker 1: much bad news there has been priced in. But on

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Speaker 1: the rest of the industrial complex it isn't so clean,

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Speaker 1: with a lot of disappointments leading to some pretty big

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Speaker 1: price action. Yeah. Look, I mean stock by stock, you know,

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Speaker 1: we could you know, we could certainly find something in

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Speaker 1: some ways it poised to do better because of how

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Speaker 1: much pain was priced in and how much of a

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Speaker 1: house cleaning there's been. That's our view, you know, Frankly,

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Speaker 1: is that earlier last year it was it was a

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Speaker 1: valuation story on tech, right, you know, the stocks are

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Speaker 1: very expensive, rates and inflation were hired and you got

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Speaker 1: that that huge valuation headwind. UM. Third quarter earnings were

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Speaker 1: a little bit different, where companies started talking about cost cuts,

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Speaker 1: pressure on earnings, things of that nature, and that's when

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Speaker 1: I think expectations started to really ratchet lower for the

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Speaker 1: tech space UM. And you know, our view coming into

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Speaker 1: this quarter was was not to sarty that the results

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Speaker 1: were going to be all that great. It's just that

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Speaker 1: expectations were so low that it just put risk reward

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Speaker 1: to the upside. Expectations were low, positioning were low, so

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Speaker 1: in in that sort of combination, it doesn't take a

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Speaker 1: whole lot to get the stocks moving higher. So again,

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Speaker 1: this could be a quote unquote low quality rally, which

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Speaker 1: which we think it's been. If you look at what's

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Speaker 1: driven the rally, it hasn't been the best and the

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Speaker 1: brightest um. But but we do think relative to expectations,

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Speaker 1: you know that That's where we said again, I think

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Speaker 1: you have to reevaluate that now that you enter February,

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Speaker 1: because you're on a fourth thousand handle after a rally,

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Speaker 1: that that's different than being a thirty, thirty and fifty

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Speaker 1: coming into the earth. And we talk about this rally

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Speaker 1: as if it's only been going on for a month.

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Speaker 1: For the lacks of Caterpilly, it's been going on since

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Speaker 1: the end of September. That stock is up by more

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Speaker 1: than six since then. They've just delivered the first earning

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Speaker 1: smiths since the pandemic back in I keep hearing everyone

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Speaker 1: talk about how do I want to play the chine

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Speaker 1: of reopening story, and I keep going back to this, Well,

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Speaker 1: it's been playing game for three months in the minors.

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Speaker 1: In Caterpillar abroad. You've seen that. You've seen that story

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Speaker 1: in fact, for the banks of in Europe has been

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Speaker 1: playing out since the summer. They have absolutely ripped. When

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Speaker 1: you Hito, who say things like how do I play

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Speaker 1: the China reopening story? What are you telling them? Well,

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Speaker 1: I think you're right, it's got in stages. I think

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Speaker 1: at the beginning a lot of people were using options

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Speaker 1: to just get high pay out owning said let's say

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Speaker 1: the Chinese index. Right then it became what you're describing

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Speaker 1: as more of that infrastructure play. I think right now

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Speaker 1: the question is how much how much of a consumer spending,

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Speaker 1: you know, impulse can we get out of China as

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Speaker 1: you fully reopened? And I think that started to focus

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Speaker 1: people on things like, I don't know luxury brands. You

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Speaker 1: know in Europe, I think you know, German equities have

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Speaker 1: really benefited from this as well because they have a

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Speaker 1: lot of export exposures. So there's still a group of

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Speaker 1: the investment community I think that isn't really comfortable owning

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Speaker 1: China equity directly at outright, just given some of the

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Speaker 1: policy challenges. So what people are looking for is what

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Speaker 1: is that that second order trade? And I think it

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Speaker 1: was metals and minding and things like that, and then

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Speaker 1: it involved just like a consumer spending or tourism story.

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Speaker 1: So your mom will be over at Caterpillar, makes the

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Speaker 1: mensus no words, and the near one hundred year history

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Speaker 1: of Caterpillar. Last year was one of their best years ever.

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Speaker 1: We have on radio and tv P both stratified by

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Speaker 1: this eco fed debate, all the uncertainties, and they're not

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Speaker 1: in the market. How do they participate in Stuart Kaiser's

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Speaker 1: optimism so they can possibly enjoy Caterpillars near best year

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Speaker 1: in a hundred years. Look, I think from from an

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Speaker 1: owning stocks perspective out right, you know, as you know,

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Speaker 1: we've been focused on more of these high quality stocks

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Speaker 1: that you can kind of own through a recession. UM.

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Speaker 1: So that's you know, high quality stocks that are buying

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Speaker 1: back a lot of a lot of their shares um

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Speaker 1: don't have as much you know, downside earnings risks. So

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Speaker 1: we've been sort of pointing people in that direction, UM,

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Speaker 1: and I think we're still of that view, Tom. It's

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Speaker 1: it's most investors that I've spoken to, even though the

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Speaker 1: markets rallied, and they haven't really changed their baseline core

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Speaker 1: positioning or portfolio, which still remains pretty defensive. So what

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Speaker 1: they've been doing in this rally is using ETFs or

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Speaker 1: or options to just kind of add to their exposure

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Speaker 1: around the edges. But I think if when you sit

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Speaker 1: down with them, they're not saying, oh wow, we rallied

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Speaker 1: for a month, my whole view has changed. It's more, Yeah,

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Speaker 1: I'm still conservative. I still want to sit in this

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Speaker 1: this portfolio. What I need to do is kind of

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Speaker 1: risk manage around it. So I still think you're in

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Speaker 1: this larger, larger cap, higher quality you know, share buy back,

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Speaker 1: you know type story, and then you're just trying to

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Speaker 1: adjust risk around the edges. And we haven't touched out.

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Speaker 1: You also have a lot of folks that are saying,

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Speaker 1: why don't need to be in equities? I can be

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Speaker 1: in credit or I can be embossed. The second it

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Speaker 1: wasn't a month ago. Definitely just came on the show

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Speaker 1: and said, sit out the front half. It's going to

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Speaker 1: be ugly. Still get his second half? Yeah, now, and

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Speaker 1: in June this this line in the center. Then if

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Speaker 1: it just starts running and now it's you missed it,

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Speaker 1: sorry it's over, that could be actually nice too. It's

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Speaker 1: good to see it. Thank you a City group. Right

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Speaker 1: now we're gonna look at China. This is an important

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Speaker 1: Leland are you guys done? Thank you? Leland Miller co

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Speaker 1: founder and CEO of China base book with us right now.

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Speaker 1: I'm truly excellent on the micro data of China. Leland,

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Speaker 1: I'm confused. I've got Bloomberg Economics and a fabulous article

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Speaker 1: out today, really Mustard. I'll get it out on Twitter

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Speaker 1: and occur and shanks you. Joran von Roy who was

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Speaker 1: just on the program. I put you to his name

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Speaker 1: on the program as well, and tom Orlick and they're saying,

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Speaker 1: forget about it. We're looking at three ish up to

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Speaker 1: five ish g d P in China, and yet institutions

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Speaker 1: have a much more cautious view on this noodling around

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Speaker 1: three percent. Who's right, Well, I think this is one

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Speaker 1: of the stories that's gonna have to play out during

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Speaker 1: the year. The China recovery is set up to be

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Speaker 1: a very nice cyclical bounce back. But this could be

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Speaker 1: a cyclical bounce back of a quarter or two or

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Speaker 1: it could be longer, depending on one whether consumers jump in,

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Speaker 1: which is a huge if. And second huge if is

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Speaker 1: if there's more policy support than or. I guess the

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Speaker 1: policy port that people think. There's this assumption that the

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Speaker 1: government is gonna jump in and start stimulating on top

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Speaker 1: of what's already an organic recovery. You know, we're 're

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Speaker 1: quite skeptical that, but we're watching the indicators and trying

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Speaker 1: to see, you know, where where the government's head is

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Speaker 1: on this. My experience, Leland is always centers around a

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Speaker 1: bed all out of real estate. Let's call it healing

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Speaker 1: real estate. Are they going to heal real estate with

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Speaker 1: cash infusions from Beijing? They're not gonna heal real estate.

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Speaker 1: But what they have been doing is calling the herd,

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Speaker 1: and now they are going to ventilate the sector. So basically,

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Speaker 1: what they've been trying to do is take out the

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Speaker 1: weak firms without killing the healthy firms, diminish property as

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Speaker 1: a growth driver for China going forward. They've been doing that,

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Speaker 1: but now you've got the potential for contagion because the

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Speaker 1: numbers are have been so unbelievably bad. Are December data

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Speaker 1: are que for data, some of the worst property results

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Speaker 1: we've ever seen. So they're stepping in the providing credit lines.

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Speaker 1: They're they're they're you know, lowering mortgage rates. Uh, they

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Speaker 1: want to make sure they give a little bit of

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Speaker 1: to the sector. But this is very different from the

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Speaker 1: game changer it's being made out to be. Across the

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Speaker 1: street gonna be very cautious on what this actually means clan.

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Speaker 1: Where is the money actually going where a consumers spending?

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Speaker 1: Is it all domestic? Are more people getting on planes?

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Speaker 1: Are you seeing those flows go into commodities to travel

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Speaker 1: around or is it going into staples and just activities

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Speaker 1: in the region. Well, it's too early to see the

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Speaker 1: trends for the entire year because you had this first

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Speaker 1: month skewed by cod COVID and skewed by the Lunar

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Speaker 1: New Year holiday. You know, the this month, all the

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Speaker 1: pops in the data were around where you'd expect, which

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Speaker 1: is travel. You know, restaurants, hospitality, people were traveling again,

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Speaker 1: people were moving around again, and so you saw a big,

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Speaker 1: big pop in that data. Going forward, you know, the

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Speaker 1: question is our consumer is going to come back. There's

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Speaker 1: this a subject that Chinese consumers are going to revenge

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Speaker 1: s bend. You know, they probably will a little bit,

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Speaker 1: but the idea they're gonna go do this and drive

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Speaker 1: a recovery for the entire year. We've never seen anything

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Speaker 1: like that. So again we're gonna watch the data because

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Speaker 1: this is not the type of thesis we've ever seen

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Speaker 1: playoff before. Where's the data. What's it pointing toward in

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Speaker 1: terms of fossil fuel combustion, the idea of crude and

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Speaker 1: natural gas, and what's going on with the coal imports

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Speaker 1: from Australia, some of the stockpiles, how depleted are they?

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Speaker 1: How much is China going to have to import and forward?

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Speaker 1: Well two was awful, So there's gonna be a lot

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Speaker 1: of things going on, particularly on early in three, which

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Speaker 1: you're going to lead to greater commodities demand. A lot

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Speaker 1: of it has to do with how much policy support

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Speaker 1: continues on through the year. Are we going to see

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Speaker 1: them double down into some infrastructure and some other things,

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Speaker 1: Because look, if you're talking about the consumer driving you know,

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Speaker 1: the recovery this year, which again we're quite skeptical of.

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Speaker 1: But if you are, then you're not leading to two

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Speaker 1: huge tons of oil demand skyrocketing. You'll see it from

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Speaker 1: a jet fuel if there's more travel. But you know,

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Speaker 1: people are mixing their their investment thesis here because they're

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Speaker 1: so bullish on the China recovery. But you know that

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Speaker 1: doesn't necessarily mean there's gonna be a jump in oil

429
00:20:41,920 --> 00:20:44,119
Speaker 1: demand throughout the year. So we have to be a

430
00:20:44,119 --> 00:20:47,040
Speaker 1: little bit cautious on that. I'll make a joke of it, Leland,

431
00:20:47,119 --> 00:20:49,960
Speaker 1: because that's what we do on a Tuesday before feed day.

432
00:20:50,000 --> 00:20:53,800
Speaker 1: But the joke is just China do work from home.

433
00:20:54,720 --> 00:20:56,920
Speaker 1: But really what it comes down to are they back

434
00:20:56,960 --> 00:21:00,280
Speaker 1: to work? I mean, with the advent of co COVID,

435
00:21:00,720 --> 00:21:04,000
Speaker 1: are people back to work in those manufacturing plants and

436
00:21:04,080 --> 00:21:07,359
Speaker 1: all of the ancillary businesses to it. Are they back

437
00:21:07,400 --> 00:21:11,600
Speaker 1: to work? And are they taken home a paycheck? Uh,

438
00:21:11,640 --> 00:21:14,600
Speaker 1: they're not back to work yet because you know, the

439
00:21:14,640 --> 00:21:17,080
Speaker 1: COVID situation still has a calm down. Maybe March they're

440
00:21:17,080 --> 00:21:19,840
Speaker 1: back to work. Right now, they're traveling for they're either

441
00:21:19,920 --> 00:21:22,080
Speaker 1: sick or they're they're traveling for Lunar New Year. So

442
00:21:22,160 --> 00:21:25,000
Speaker 1: manufacturing hasn't you know, looked better. But we gotta keep

443
00:21:25,040 --> 00:21:27,280
Speaker 1: in mind from a year ago level, it's way down.

444
00:21:27,560 --> 00:21:28,639
Speaker 1: You can't see it when you look at the p

445
00:21:28,760 --> 00:21:30,520
Speaker 1: m I because the p m I can't track data

446
00:21:30,560 --> 00:21:32,639
Speaker 1: from year to year. But things have been up from

447
00:21:32,680 --> 00:21:34,600
Speaker 1: the end of last year, but they're down on year.

448
00:21:34,640 --> 00:21:37,520
Speaker 1: They're down from two years ago. So manufacturing is not

449
00:21:37,600 --> 00:21:40,480
Speaker 1: seeing this this this you know, superstar recovery just because

450
00:21:40,480 --> 00:21:42,920
Speaker 1: the p m I had an upside surprise, it's gonna

451
00:21:42,920 --> 00:21:45,520
Speaker 1: be understand that manufacturing is not going to drive growth

452
00:21:45,560 --> 00:21:48,639
Speaker 1: this year with a global economic recession potentially looming. You know,

453
00:21:48,680 --> 00:21:50,639
Speaker 1: it just happens to be one good month in the

454
00:21:50,720 --> 00:21:53,960
Speaker 1: data Leland. How much you watching what's happening in Washington

455
00:21:54,080 --> 00:21:58,320
Speaker 1: and a sudden re reprising of some of the animosity

456
00:21:58,520 --> 00:22:01,720
Speaker 1: that US politicians have towards China and the potential ban

457
00:22:02,240 --> 00:22:05,840
Speaker 1: of exporting supplies to Huahwei. How much is that factoring

458
00:22:05,920 --> 00:22:10,560
Speaker 1: into your outlook for China. Well, it's never gone away,

459
00:22:10,760 --> 00:22:12,440
Speaker 1: you know. I think people make too much of these

460
00:22:12,480 --> 00:22:15,080
Speaker 1: meetings when she and Biden, you know, shake hands, and

461
00:22:15,400 --> 00:22:17,880
Speaker 1: you know, Tony Blanken and and and and Jenny Yelling

462
00:22:17,920 --> 00:22:19,840
Speaker 1: are going over to China, and a lot of people

463
00:22:19,880 --> 00:22:21,960
Speaker 1: read into this saying, oh, the relationship must be getting

464
00:22:22,040 --> 00:22:24,680
Speaker 1: much better. Well, it's good that tensions are calmed down

465
00:22:24,720 --> 00:22:27,640
Speaker 1: in a short term, you know, in a short period, uh,

466
00:22:27,640 --> 00:22:29,640
Speaker 1: you know, during a short window. But but this does

467
00:22:29,680 --> 00:22:32,040
Speaker 1: not mean we're not heading in one direction in terms

468
00:22:32,040 --> 00:22:35,840
Speaker 1: of tighter export controls and and and more more more

469
00:22:35,920 --> 00:22:39,040
Speaker 1: tense uh policy back and forth. So this really hasn't

470
00:22:39,119 --> 00:22:40,600
Speaker 1: changed our outlook at all. I think people have to

471
00:22:40,680 --> 00:22:43,480
Speaker 1: understand that the relationship is going to get more fraud

472
00:22:43,520 --> 00:22:46,280
Speaker 1: over time, not less fraught. And this is just another

473
00:22:46,320 --> 00:22:48,720
Speaker 1: head wing between for the economies of both countries. And

474
00:22:48,960 --> 00:22:50,399
Speaker 1: then we've got a lot to talk about for the

475
00:22:50,440 --> 00:22:52,240
Speaker 1: year ahead. That's for sure, little bit of that of

476
00:22:52,280 --> 00:23:04,200
Speaker 1: the China base book. What we're gonna do right now

477
00:23:04,720 --> 00:23:07,439
Speaker 1: is talk to a C class officer of a different cloth.

478
00:23:07,520 --> 00:23:10,680
Speaker 1: He's out of Auburn and Vanderbilt, but very different. He's

479
00:23:10,720 --> 00:23:13,399
Speaker 1: the only one in the automobile industry to try to

480
00:23:13,400 --> 00:23:16,000
Speaker 1: go to a quieter industry. He was at Delta Airlines

481
00:23:16,680 --> 00:23:21,280
Speaker 1: for years and the volatility of everything aviation. Paul Jacobson

482
00:23:21,400 --> 00:23:24,000
Speaker 1: is the chief financial officer of General Motives, and Lisa

483
00:23:24,080 --> 00:23:27,600
Speaker 1: is gonna grill him on her need for an electric car.

484
00:23:27,680 --> 00:23:31,399
Speaker 1: You need a GM electric. I'll let someone else do

485
00:23:31,440 --> 00:23:33,800
Speaker 1: the sales pitch for Paul. I am curious starting with

486
00:23:33,840 --> 00:23:36,320
Speaker 1: the airline industry and the price wars of your are

487
00:23:36,320 --> 00:23:39,159
Speaker 1: we entering into a new price war of the electric vehicle?

488
00:23:39,200 --> 00:23:43,520
Speaker 1: Ilk Well, First of all, Lisa, Tom, thank you for

489
00:23:43,600 --> 00:23:45,680
Speaker 1: having me on. And Tom, I wore my Auburn tie

490
00:23:45,680 --> 00:23:48,680
Speaker 1: today just for you, but I just want to say

491
00:23:48,720 --> 00:23:51,239
Speaker 1: thanks to the to the GM team for everything that

492
00:23:51,280 --> 00:23:56,359
Speaker 1: they did, overcoming tremendous levels of adversity, huge inflation results

493
00:23:56,400 --> 00:23:59,480
Speaker 1: over five billion dollars of inflation to deliver the results

494
00:23:59,480 --> 00:24:03,720
Speaker 1: that we saw in two And you know, vehicle demand

495
00:24:03,720 --> 00:24:06,640
Speaker 1: for our vehicles remains quite strong, for our evs and

496
00:24:06,640 --> 00:24:09,919
Speaker 1: and for our ICE portfolio as well. So UM, you know,

497
00:24:09,960 --> 00:24:13,840
Speaker 1: as we look at the business, UM competition is no

498
00:24:13,840 --> 00:24:16,040
Speaker 1: no stranger to us. We We've been in the business

499
00:24:16,119 --> 00:24:19,359
Speaker 1: for over a hundred years and I think the team

500
00:24:19,440 --> 00:24:23,160
Speaker 1: is really really good at competing and where we see UM,

501
00:24:23,200 --> 00:24:26,040
Speaker 1: consumer demand for our vehicles at our price points is

502
00:24:26,160 --> 00:24:27,880
Speaker 1: really strong. We just need to make sure we get

503
00:24:27,920 --> 00:24:30,560
Speaker 1: production up to be able to meet that demand. So

504
00:24:30,600 --> 00:24:32,600
Speaker 1: are you're saying, basically you're not going to cut prices

505
00:24:32,640 --> 00:24:35,720
Speaker 1: because you don't need two People still are really requiring

506
00:24:36,080 --> 00:24:40,200
Speaker 1: your cars regardless of what the price is. Yeah. We

507
00:24:40,200 --> 00:24:42,600
Speaker 1: we have waiting lists for for all of our vehicles

508
00:24:42,640 --> 00:24:45,400
Speaker 1: as we roll out, and we expect production to ramp

509
00:24:45,520 --> 00:24:47,720
Speaker 1: up pretty quickly as we get, especially into the back

510
00:24:47,720 --> 00:24:50,760
Speaker 1: half of twenty three to meet our goal of delivering

511
00:24:50,760 --> 00:24:54,280
Speaker 1: four hundred thousand evs by the first half of four

512
00:24:54,600 --> 00:24:58,639
Speaker 1: and a million evs annually by we believe the demand

513
00:24:58,720 --> 00:25:01,280
Speaker 1: is there and strong. So how does this really pair

514
00:25:01,480 --> 00:25:03,560
Speaker 1: with the story that we're seeing out of auto sales

515
00:25:03,600 --> 00:25:06,000
Speaker 1: with sagging sales one of the worst years last year

516
00:25:06,040 --> 00:25:07,840
Speaker 1: going back in a number of decades as a whole,

517
00:25:08,320 --> 00:25:11,440
Speaker 1: and people are talking about demand waning on the margins.

518
00:25:11,480 --> 00:25:15,800
Speaker 1: Why is GM seeing such a different picture? Well, I

519
00:25:15,840 --> 00:25:17,719
Speaker 1: think you know a couple of things. One, the quality

520
00:25:17,760 --> 00:25:20,240
Speaker 1: of our launches and the new vehicles that we've brought

521
00:25:20,320 --> 00:25:23,480
Speaker 1: to market UM are really being received well by our

522
00:25:23,520 --> 00:25:28,280
Speaker 1: our consumers. I think are our engineering manufacturing teams partnered

523
00:25:28,280 --> 00:25:30,879
Speaker 1: with our supply chain teams did a great job of

524
00:25:31,320 --> 00:25:37,600
Speaker 1: increasing production last year by UH and UH, and we've

525
00:25:37,600 --> 00:25:40,280
Speaker 1: been seeing vehicles move very very quickly once we get

526
00:25:40,520 --> 00:25:42,960
Speaker 1: once we get them to dealers, we have seen some

527
00:25:43,080 --> 00:25:46,320
Speaker 1: challenges in the outbound logistics, so this is after we

528
00:25:46,400 --> 00:25:48,760
Speaker 1: finish a vehicle and getting it to the dealers. That's

529
00:25:48,800 --> 00:25:52,040
Speaker 1: caused our inventories UH to increase a little bit. We're

530
00:25:52,080 --> 00:25:54,439
Speaker 1: up to about fifty days of inventory. But if you

531
00:25:54,480 --> 00:25:57,479
Speaker 1: look at the vehicles that are on the laws at dealers,

532
00:25:57,480 --> 00:26:00,720
Speaker 1: there about a third of what they were in UH.

533
00:26:00,800 --> 00:26:03,160
Speaker 1: Some of that is going to be I think permanent synergies.

534
00:26:03,200 --> 00:26:05,320
Speaker 1: But some of that just speaks to how quickly vehicles

535
00:26:05,320 --> 00:26:08,440
Speaker 1: are turning when they get delivered to dealerships, and that's

536
00:26:08,440 --> 00:26:10,520
Speaker 1: a testament to the to the quality of the products

537
00:26:10,640 --> 00:26:13,640
Speaker 1: we produce. Paul, the aviation business that you were part

538
00:26:13,680 --> 00:26:16,240
Speaker 1: of had a big turnaround where they started to be

539
00:26:16,359 --> 00:26:20,680
Speaker 1: responsible about free cash flow, responsible to shareholders. We lost

540
00:26:20,680 --> 00:26:24,920
Speaker 1: the volatility, the huge volatility, the craziness of aviation pricing.

541
00:26:25,560 --> 00:26:29,480
Speaker 1: The fact is the automaker's trade a single digit price

542
00:26:29,560 --> 00:26:33,080
Speaker 1: to earning multiples. You can use every other metric you

543
00:26:33,080 --> 00:26:36,040
Speaker 1: you have. Is there any pressure in the boardroom of

544
00:26:36,160 --> 00:26:40,720
Speaker 1: GM to get a more persistent free cash flow that

545
00:26:40,920 --> 00:26:47,560
Speaker 1: earns a higher pe multiple by the street. Well, thanks,

546
00:26:47,640 --> 00:26:50,159
Speaker 1: thanks for thanks for that question, Tom, And you know,

547
00:26:50,320 --> 00:26:52,720
Speaker 1: thanks for highlighting kind of some of the work that

548
00:26:52,760 --> 00:26:55,359
Speaker 1: we had done back in the airline industry. And what

549
00:26:55,400 --> 00:26:58,320
Speaker 1: I would tell you is we we we UM spent

550
00:26:58,400 --> 00:27:00,000
Speaker 1: a lot of time with a board on freak out

551
00:27:00,040 --> 00:27:03,719
Speaker 1: flow in particular. You know, cash from operations and the

552
00:27:03,720 --> 00:27:06,479
Speaker 1: cash generation of the business is what's funding our journey,

553
00:27:06,480 --> 00:27:09,199
Speaker 1: and we've been very clear about that. UM SO a

554
00:27:09,240 --> 00:27:12,399
Speaker 1: strong ice portfolio and a strong vehicle portfolio through the

555
00:27:12,440 --> 00:27:15,960
Speaker 1: transformation is critically important to us. And you know, there's

556
00:27:16,000 --> 00:27:18,480
Speaker 1: probably there's a lot of things. I'm proud of the

557
00:27:18,520 --> 00:27:20,680
Speaker 1: GM team for what they've done. But when you look

558
00:27:20,720 --> 00:27:23,760
Speaker 1: at free cash flow generation on the backs of near

559
00:27:23,800 --> 00:27:27,480
Speaker 1: record capital investment in two I think it speaks to

560
00:27:27,480 --> 00:27:29,560
Speaker 1: the focus that we have ten and a half billion

561
00:27:29,600 --> 00:27:32,320
Speaker 1: dollars last year. We think we're going to generate another

562
00:27:32,359 --> 00:27:34,680
Speaker 1: five to seven billion dollars in free cash flow in

563
00:27:35,560 --> 00:27:38,280
Speaker 1: three UM and that's with a couple of billion dollar

564
00:27:38,400 --> 00:27:41,800
Speaker 1: increase in capital expenditures at eleven to thirty billion dollars

565
00:27:41,800 --> 00:27:43,600
Speaker 1: this year. I don't want you to be Apple here

566
00:27:43,680 --> 00:27:47,080
Speaker 1: reporting on Thursday, but are you at a point where

567
00:27:47,080 --> 00:27:51,359
Speaker 1: you can take use of cash in reward shareholders to

568
00:27:51,560 --> 00:27:56,200
Speaker 1: garner a higher price to earnings multiple versus the ancient

569
00:27:56,240 --> 00:27:59,600
Speaker 1: back to Mr Sloan of piling it back into the

570
00:27:59,640 --> 00:28:04,679
Speaker 1: business US. So there we have a very balanced and

571
00:28:04,720 --> 00:28:08,080
Speaker 1: prescribed capital allocation process. Tom. So, you know, the first

572
00:28:08,119 --> 00:28:10,280
Speaker 1: thing that we're doing is investing in the business, and

573
00:28:10,680 --> 00:28:12,920
Speaker 1: we have a lot of transformation work to do. Is

574
00:28:12,960 --> 00:28:14,879
Speaker 1: you can see from the capital that we've put in,

575
00:28:15,000 --> 00:28:17,920
Speaker 1: but as we start ramping up e V volumes. As

576
00:28:17,920 --> 00:28:21,080
Speaker 1: you start to see production of our ultium cells at

577
00:28:21,119 --> 00:28:23,960
Speaker 1: Sell Plant one and then sell plants too in three

578
00:28:24,000 --> 00:28:26,719
Speaker 1: coming online, you're starting to see the benefit of that,

579
00:28:26,760 --> 00:28:29,359
Speaker 1: because I think we're going to be incredibly well positioned

580
00:28:29,440 --> 00:28:32,800
Speaker 1: for the growth in the EV market. But once we've

581
00:28:32,840 --> 00:28:35,040
Speaker 1: invested in the business, we also have to make sure

582
00:28:35,080 --> 00:28:38,280
Speaker 1: we maintain a strong investment grade balance sheet. Uh. And

583
00:28:38,360 --> 00:28:39,800
Speaker 1: you know, at the end of the year and even

584
00:28:39,840 --> 00:28:43,120
Speaker 1: early this year, we've early redeemed some bonds um as

585
00:28:43,320 --> 00:28:46,000
Speaker 1: with that cash flow to help strengthen the balance sheet

586
00:28:46,040 --> 00:28:48,640
Speaker 1: and fortify that. And we also in the in the

587
00:28:48,680 --> 00:28:50,400
Speaker 1: back half of the year returned two and a half

588
00:28:50,400 --> 00:28:53,680
Speaker 1: billion dollars back to shareholders. I think it's important to

589
00:28:53,720 --> 00:28:56,920
Speaker 1: strike that balance because you know, what we invest has

590
00:28:56,960 --> 00:29:00,000
Speaker 1: to earn a return on invested capital, but our share

591
00:29:00,040 --> 00:29:02,320
Speaker 1: holders and our and our bond holders have to see

592
00:29:02,360 --> 00:29:04,920
Speaker 1: tangible results from that. And uh, you know, I hope

593
00:29:04,920 --> 00:29:07,440
Speaker 1: to see more consistency in that across the board, Paul.

594
00:29:07,520 --> 00:29:09,600
Speaker 1: Just to wrap up, we've been talking a lot about

595
00:29:09,880 --> 00:29:12,560
Speaker 1: how the pressures between the fissure between the US and

596
00:29:12,640 --> 00:29:16,080
Speaker 1: China are really creating some headaches in the c suite.

597
00:29:16,120 --> 00:29:19,920
Speaker 1: From your perspective, are you looking to reduce GMS dependency

598
00:29:20,360 --> 00:29:24,080
Speaker 1: both on infrastructure, on supply chains coming from China as

599
00:29:24,120 --> 00:29:28,800
Speaker 1: well as sales into that nation. Well, you know, first

600
00:29:28,800 --> 00:29:31,600
Speaker 1: of all, our our China team has done a remarkable job.

601
00:29:31,920 --> 00:29:34,960
Speaker 1: They had a lot of challenges in two with the

602
00:29:35,160 --> 00:29:38,800
Speaker 1: zero COVID policies, and we're obviously seeing you know, a

603
00:29:38,800 --> 00:29:42,560
Speaker 1: lot of some COVID slowdowns in UH in late two

604
00:29:42,640 --> 00:29:46,560
Speaker 1: and in THEE. But the team is really focused on that.

605
00:29:46,600 --> 00:29:50,280
Speaker 1: We've got strong partnerships there. We've got strong GM vehicles

606
00:29:50,640 --> 00:29:52,760
Speaker 1: UM coming to that market as well, and I think

607
00:29:52,760 --> 00:29:55,360
Speaker 1: it will be an important piece of it. UM. That

608
00:29:55,480 --> 00:29:57,280
Speaker 1: being said, you know, with the with the deal that

609
00:29:57,360 --> 00:30:00,960
Speaker 1: we announced today with Lithium America US, and with work

610
00:30:01,000 --> 00:30:04,520
Speaker 1: that we've done with controlled Thermal Resources and live in

611
00:30:04,640 --> 00:30:07,600
Speaker 1: in the Lithium space and PASCO and others UH, you

612
00:30:07,680 --> 00:30:11,040
Speaker 1: see a much more geographically diverse supply chain building for

613
00:30:11,080 --> 00:30:14,160
Speaker 1: some of those battery raw materials and UH, and we're

614
00:30:14,160 --> 00:30:16,360
Speaker 1: gonna we're gonna be able to take advantage of that.

615
00:30:16,440 --> 00:30:18,480
Speaker 1: I think, because of our size and scale and our

616
00:30:18,520 --> 00:30:21,920
Speaker 1: willingness to work creatively with our partners. Great to catch

617
00:30:22,000 --> 00:30:26,480
Speaker 1: up stalks up this morning by full point enough to

618
00:30:27,680 --> 00:30:31,520
Speaker 1: subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and

619
00:30:31,680 --> 00:30:35,880
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620
00:30:36,160 --> 00:30:39,640
Speaker 1: starting at seven am. Easter. I'm Bloomberg dot Com, the

621
00:30:39,720 --> 00:30:43,680
Speaker 1: I Heart Radio app tune In, and the Bloomberg Business app.

622
00:30:44,200 --> 00:30:47,840
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623
00:30:48,240 --> 00:30:52,200
Speaker 1: I'm the Bloomberg Terminal. Thanks for listening. I'm Tom Keane,

624
00:30:52,280 --> 00:30:54,040
Speaker 1: and this is Bloomberg